Projected Tax Revenue Shortfall In Mass. Sets Up Tough Budget Math, Tufts Researchers Say

A policy research group is warning state lawmakers to prepare for a "dramatic collapse" in state revenue, estimating a tax revenue shortfall of $1.8 billion to $3 billion over the next 15 months.

In a brief released Tuesday, Center for State Policy Analysis researchers said state tax revenues will begin to decline immediately, while emergency spending increases on health needs and economic supports associated with the COVID-19 pandemic.

"No one really knows how effectively we're bending the curve on this pandemic, how far-reaching the economic damage will be” or when we might find some new normalcy," the brief concludes. "But one thing that seems increasingly certain is that the state will likely face a dramatic drop-off in revenues, potentially amounting to between $1.8 and $3 billion before the end of FY 2021."

On Monday, as the number of people in Massachusetts confirmed with COVID-19 rose to 5,752, Gov. Charlie Baker projected that a surge in cases could hit the state somewhere between April 7 and April 17.

The pandemic response has upended much of daily life, with schools and most businesses closed and gatherings of more than 10 people banned.

It's also completely shifted the Legislature's focus and thrown up a series of complex questions around how to craft next year's $44.6 billion budget, and ensure that it is balanced, when many people are out of work and much of the state's economy is shut down.

The Center for State Policy and Analysis, in its brief, said that from an economic perspective the crisis differs from previous downturns because of the unprecedented pace of decline.

Using a model "based on the historically strong connection" between Massachusetts state tax revenues and the national gross domestic product, the center projected shortfalls ranging from $540 million to $753 million in fiscal 2020, and from $1.2 billion to $2.6 billion in fiscal 2021.

Federal aid could offer a "substantial cushion" to the state budget, the center said. Last week, U.S. Rep. Lori Trahan said a new $2 trillion economic stimulus package would steer about $2.67 to Massachusetts state and local governments.

State budget writers in January agreed to a projection of $31.15 billion in fiscal 2021 tax revenue. They're now working to convene a virtual hearing to gather updated feedback from experts on the state's economic condition and what might be in store.

The center's brief also flagged a series of long-term spending needs and other policy matters for lawmakers to consider, including support for cities and towns, equality in broadband internet access as students learn remotely, a likely strain on the unemployment insurance trust fund, and "small colleges, which were already under intense financial pressure and which may not be able to survive another empty semester."

The November election "could require a wholesale rethinking of how we vote in Massachusetts," and a current lack of toll-paying drivers and fare-paying transit riders "risks setting off a vicious circle of declining revenue leading to reduced investment," the paper said.

The Center for State Policy Analysis launched last month at Tufts University's Jonathan M. Tisch College of Civic Life, with the goal of providing lawmakers and voters with nonpartisan, "real-time" analysis of key topics.


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